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The following is from Fitch Ratings on June 18:
Fitch Ratings assigns ratings to the Nelnet Student Loan Trust (NSLT) 2014-5 student loan asset-backed notes as follows:
--$587,000,000 class A notes 'AAAsf'; Outlook Stable;
--$16,000,000 class B notes 'A+sf'; Outlook Stable.
KEY RATING DRIVERS
High Collateral Quality: The trust collateral consists of 100 percent Federal Family Education Loan Program (FFELP) loans including 19.82 percent of rehabilitated (rehab) loans. The credit quality of the trust collateral is high, in Fitch's opinion, based on the guarantees provided by the transaction's eligible guarantors and at least 97 percent reinsurance of principal and accrued interest provided by the U.S. Department of Education (ED). Fitch affirmed and assigned Outlook Stable to the U.S. Sovereign rating on March 24.
Sufficient Credit Enhancement: Cash flow scenarios for class A and B notes were satisfactory under Fitch's respective stresses. Total credit enhancement (CE) is provided by overcollateralization (OC) and excess spread, and 2.65 percent subordination is provided to the class A notes by the class B notes. At closing, total and senior parity are expected to be 101.17 percent and 103.93 percent, respectively. A target OC amount equal to the greater of 1.85 percent of the adjusted pool balance and $2 million must be met before excess spread can be released from the trust.
Adequate Liquidity Support: Liquidity support is initially provided by a $6,331,500 reserve account (1.05 percent of outstanding note balance), funded at closing with note proceeds. On or after the May 2019 distribution date, the specified reserve requirement will be the greater of 0.25 percent of the outstanding note balance and 0.10 percent of the initial note balance.
Target Overcollateralization Level: Excess spread must build to the greater of: 1.85 percent of the adjusted pool balance or $2 million before excess cash may be released from the trust.
Acceptable Servicing Capabilities: Nelnet, Inc. will service approximately 36.7 percent of the NSLT 2014-5 portfolio. Great Lakes Educational Loan Services Inc. and Xerox Education Services LLC (Xerox-ES) will service 38.9 percent and 24.4 percent respectively of the remaining portfolio. In Fitch's opinion, all servicers are acceptable servicers of FFELP student loans.
Since FFELP student loan ABS rely on the U.S. government to reimburse defaults, 'AAAsf' FFELP ABS ratings will likely move in tandem with the 'AAA' U.S. sovereign rating. Aside from the U.S. sovereign rating, defaults and basis risk account for the majority of the risk embedded in FFELP student loan transactions. Additional defaults and basis shock beyond Fitch's published stresses could result in future downgrades. Likewise, a buildup of credit enhancement driven by positive excess spread given favorable basis factor conditions could lead to future upgrades.
For further discussion of Fitch's sensitivity analysis, please see the presale titled 'NSLT 2014-5', dated June 12, available at fitchratings.com.
Additional information is available at 'fitchratings.com'.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (May 20,);
--'Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria' (May 17, 2013);
--'Representations, Warranties and Enforcement Mechanism in Global Structure Finance Transactions' (April 17, 2012).
Global Structured Finance Rating Criteria
Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria
Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions
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